Waitresses perform for diners at the Pyongyang Restaurant in Phnom Penh. By Sebastian Strangio

VLADIVOSTOK,
Russia and SEOUL, South Korea -- The Pyongyang Café sits at 58B
Verkhneportovaya Street, a short walk from the twinkling lights of
Vladivostok's container port. Patrons in this east Russian city, the
home of the Pacific Fleet, are greeted at the door by pretty Korean
waitresses, who take their coats and usher them into small booths with
pine tables and lashings of plastic foliage. From a separate area of the
restaurant -- reserved for Koreans, one waitress tells me -- comes the
muffled sound of a karaoke machine, the same song warbling on
repeatedly. After a bottle of Russian beer, a plate of dumplings, and a
tasty bowl of bibimbap, Korea's national rice dish, I hand over a wad of
rubles equivalent to about $35.

Among the city's growing
cohort of Korean restaurants, Pyongyang Café has an unusual claim to
fame. It is run by the North Korean government, part of a far-flung
chain of restaurants that funnels much-needed foreign exchange to the
ailing regime in Pyongyang. Andrey Kalachinsky, a veteran journalist and
local analyst, said that in the Soviet era, when Vladivostok was a
closed military city, the Pyongyang Café was the only foreign eatery in
town -- a symbol of the political and economic ties between the Soviet
Union and Marshal Kim Il-Sung's Democratic People's Republic of Korea.

At
the Vladivostok restaurant, there is little to suggest any connection
with the regime just 428 miles distant. No pictures of the Kim Il-Sung
grace the walls, no slogans stamped out in shrill red Korean script.
Instead, the décor excels in a sort of kitschy chinoiserie: the walls of
one room are covered with naturalistic motifs -- golden autumn leaves
and towering cliffs -- complete with a fake tree that "emerges" from the
painted-on scene. Overlooking my booth was a framed poster of a woman
looking out coyly from behind a large fan, the Chinese character for
"double happiness" inscribed on every second blade.

Restaurants are commonly used as conduits for wads of bills

North
Korean government-run restaurants have existed for years in China, in
regions adjacent to the DPRK's northern border, but in the past decade
the business has truly gone global. In 2002, a branch of the Pyongyang
restaurant chain opened in the Cambodian tourist hub of Siem Reap -- the
first outside China -- and it became an immediate hit with South Korean
tour groups visiting the nearby temples of Angkor. The success of the
restaurant, which featured a nightly song and dance show by the North
Korean waitresses, led to the opening of a second branch in Siem Reap
and a third in the capital Phnom Penh in 2003. Since then, branches have
also opened in Thailand, Laos, Indonesia, Vietnam, Bangladesh, Nepal,
Dubai and, soon, apparently, Amsterdam.

As
North Korea's economic situation becomes increasingly dire, the number
of branches has increased. A chain of mid-tier restaurants might not
seem like much of a way to fund a government, but for the
sanctions-stricken, technologically backward DPRK, every penny counts.
After the fall of the Soviet Union and the death of Kim Il-Sung in 1994,
North Korea found fewer communist countries to trade with, more
capitalist democracies abhorred at its domestic abuses, and before long
was in a state of severe economic crisis. Both Russia and China demanded
that Pyongyang pay for imports in hard currency, rather than at
advantageous "friendship" prices. Ravaged by famine and with its heavy
industries in precipitous decline, the regime had little choice but to
open "capitalist" foreign ventures -- including, eventually, restaurants
-- to make up funding shortfalls.

"North Korea is not capable
of producing anything of sellable quality," Andrei Lankov, a Korea
expert and professor at Seoul's Kookmin University, told me. "They can
sell some stuff like seafood, medical herbs, special types of mushrooms.
But you are not going to run an economy on mushrooms."

The end
result has been a plethora of overseas cash businesses, many of dubious
legality, that prop up the North's moribund economy. Bertil Lintner,
author of Great Leader, Dear Leader: Demystifying North Korean Under the
Kim Clan, said that, along with kitschy restaurants, North Korea relies
on such revenue-raising techniques as the sale of second-hand mobile
phones and a suspected traffic in illicit drugs. But the Pyongyang Café
might not be such an innocent venture.

"The restaurants are used
to earn additional money for the government in Pyongyang -- at the same
time as they were suspected of laundering proceeds from North Korea's
more unsavory commercial activities," he said. "Restaurants and other
cash-intensive enterprises are commonly used as conduits for wads of
bills, which banks otherwise would not accept as deposits."

It's hard to know for certain how much money the restaurants raise, but in a recent report, the South Korean daily Chosun Ilbo estimated
that around 120,000 South Koreans visit the two restaurants in Siem
Reap, Cambodia, each year, contributing an estimated 200 to 300 million
won ($179,000 to $269,000) to the coffers in Pyongyang. The report
concluded that each of the restaurants probably earns $100,000 to
$300,000 per year for the regime. As a result, Lankov said the eateries
-- which probably number in the "low hundreds" across Asia - are likely
one of Pyongyang's major earners. "It's a small, poor country. For them a
few million U.S. dollars is a sufficient amount of money."

Reports
from defectors suggest that the businesses are operated through a
network of local middlemen, who send a certain amount of cash to North
Korea each year as remittances. According to one report,
the Cambodian eateries were opened by Ho Dae-sik, the local
representative of the DPRK-aligned International Taekwondo Federation.
(His son, Ho Si-ryong, is listed as the email contact for the Pyongyang
Café in Phnom Penh, though he did not respond to queries). Like North
Korean embassies, which are meant to be financially self-sufficient, the
eateries have to cover their costs without cash from the central
government.

Kim Myung-ho, a North Korean defector who ran a
restaurant in northern China, reported in 2007 that each establishment,
affiliated with "trading companies" operated by the government, was
required to meet a fixed benchmark payment. "Every year, the sum total
is counted at the business headquarters in Pyongyang, but if there's
even a small default or lack of results, then the threat of evacuation
is given," Kim told the Daily NK, a North Korea-focused online
publication. Evacuation -- going back to North Korea -- is a serious
threat for someone who is allowed a few years in the relative prosperity
of, say, Cambodia.

Kwon Eun-Kyoung, English editor of the
Daily NK, said the eateries are part of trading companies controlled by
Bureau 39, the revenue-raising arm of Kim Jong-Il's Korean Workers
Party. "Every business belongs to the party and is affiliated with the
party systematically," she said. "Even though it is maybe run by
brokers, the whole system we presume is controlled by the center of
North Korea."

The establishments, highly political both in
purpose and in the bizarre décor, have at times acted as political
lightning rods for Korean expatriates. After the South Korean frigate
Cheonan was sunk in March of last year, presumably by a North Korean
submarine, South Korean residents in Cambodia launched a campaign to
dissuade their compatriots from patronizing the DPRK-run restaurants.
The Korean Association in Cambodia distributed stickers proclaiming,
"We, Korean residents, don't go to North Korean restaurants." Posters
condemning the sinking of the Cheonan were displayed on the windows at
South Korean-run eateries.

One restaurant manager told
the Phnom Penh Post that, in mid-2010, three men came to his restaurant
and started taking photographs. The men tore the stickers from the
toilets and removed an anti-DPRK poster from a board outside the
restaurant. "They said they were taking orders from the North Korean
Embassy. The North Korean Embassy told them to take pictures and take
the [sign]," the paper quoted him as saying. The Chosun Ilbo reported a
similar stand-off at a South Korean restaurant in Siem Reap.

With
no real end in sight to tensions on the Korean peninsula, the main draw
of these pricey eateries -- the thrill they give to southerners eager
for a glimpse of life inside the estranged north -- could well be their
undoing. When I took a trip to the Pyongyang Restaurant in Phnom Penh
last year following the North's shelling of Yeonpyeong Island in
November, the flood-lit establishment was empty save for a single table
of South Korean businessmen. The turnout was so low that the usual bevy
of pale-faced waitresses didn't even bother to perform their famous
floor show.

Lankov said that, as competitive businesses, the
restaurants rely on their novelty value to South Koreans. Without that,
there may be little to keep them afloat. "The restaurants [offer] a bit
of political exoticism, so people come," said Lankov. "Otherwise, I
don't think they can be competitive."

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